Can I Get An SBA Loan With Bad Credit?

At some point in every business’s timeline, the owner has probably taken out a loan. Without small business loans, a lot of companies never would have succeeded in the first place.

So, if you are a budding entrepreneur or an existing business owner, there is a fair chance that you might have considered taking out a business loan. 

One of the most common business loans that people will take out is an SBA loan. They are offered by most lenders, and guaranteed by the Small Business Administration, so you have a much higher chance of getting these loans than you do others.

However, what happens if you have bad credit? A bad credit score can destroy chances of getting a personal loan, but does it have the same impact on business loans?

And, more importantly, will the SBA still offer you a loan if you have bad credit? We’ll be answering these questions and more in this guide. 

Can I Get An SBA Loan With Bad Credit

What is an SBA Loan?

Before we get into how bad credit can impact your chances of obtaining an SBA loan, let’s take a look at exactly what an SBA loan is.

This is a term that you might have heard thrown about a lot because SBA loans are one of the most common in business, but a lot of people don’t actually know what they are. 

SBA loans are loans that are guaranteed by the Small Business Administration, and offered by most lenders. The Small Business Administration is a government agency set up in 1953 to support small businesses and entrepreneurs.

As part of this support, the SBA offers a variety of loans, as well as counselling and advice that could help your business succeed. 

A lot of people think that the SBA offers just one type of loan, but this isn’t the case. In fact, they offer more than 9 different types of loans, all tailored to suit different types of business needs. However, the most common load that they offer is the SBA 7(a) loan.

This is because this loan is very versatile, making it suitable for lots of different businesses. So, if you need a business loan, there is a good chance that you will choose the SBA 7(a) loan as the one that you apply for. But can you get this loan if you have bad credit?

What is Bad Credit?

Now, let’s not get ahead of ourselves, before we take a look at whether an SBA loan will be accepted if you have bad credit, let’s first establish exactly what bad credit is. This term, of course, refers to your credit score or credit rating.

This is information that is gathered from you throughout your entire financial life, and can either paint a good or a bad picture. 

Generally speaking, as long as you pay your bills on time, and have done this throughout your entire life, you will have a good credit score. Even if you have taken loans out in the past, as long as you have met all the payments when required, then your credit score should remain good.

But, if you have any payments that you have fallen behind on, or debts that have gone unpaid, then your credit score will not be good. 

Everybody has a personal credit score that is used to determine whether you will receive loans, mortgages, etc. Businesses also have credit scores which are based on their payment history and current financial status.

Some people think that lenders would only care about the company’s credit score when you request a business loan.

However, this is not the case. In order to approve a loan, most lenders require details of both the company’s and the owner’s credit history, so if either has a bad credit score then this could impact the chances of you being accepted for a loan.

But what could cause you to have bad credit?

Reasons why you may have Bad Credit

There are lots of reasons why both you and your business might end up with a bad credit rating. Unfortunately, it is incredibly easy to fall behind on payments, and to find yourself in financial difficulties, and it is a lot more common than you might realize. 

Even though you might see yourself as independent of your business, a lot of lenders will look at you and your business in the same light. So, it is likely that any financial issues you experience will reflect on your business and vice versa. 

When you are in the process of applying for an SBA loan from a lender, they will probably request a full credit report for you and your business. These reports hold a complete financial history of your life, and your business. 

On your personal credit report, you will see bank statements for every single bank account that you own, as well as a full record of any credit commitments you have ever taken out. 

On your business credit report, a very similar picture will be painted, except it will solely show the financial information for your business. 

Both credit reports will lay your financial history bare for the lender to see, which is why they might come across things that have caused your credit score to be bad. Some possible reasons for this include:

  • Late or missed credit repayments.
  • A spend that exceeds the credit agreement.
  • Default on a credit agreement. 
  • A declaration of bankruptcy.
  • The liquidation of a previous company.
  • County Court Judgements (CCJ) made against you or the business. 

How to Find your Credit Score

Before you apply for any loan, it is always a good idea to check out your credit rating. The majority of lenders will not offer you a loan if you have a bad credit score, so it is best to find out where you stand before you approach any.

In a lot of cases, you will be able to make changes to improve your credit score if it is bad. So, you should take a look at your credit score before you speak to a lender. 

There are lots of ways that you can do this, but there are three main credit reference agencies that are seen as the best. To get the best picture of your credit score, you should take a look at your credit report from all of these agencies: S&P Global Ratings, Moody’s, and Fitch Ratings.

These are the Big 3 credit rating agencies in the USA, and they will give you the best picture of your personal situation.

Can I get an SBA Loan with Bad Credit?

Now that we’ve covered all of that, let’s move on to the big question. We’re not going to say that getting an SBA loan with bad credit is impossible, but it definitely is difficult.

The SBA has fairly strict guidelines for accepting loans, and one of the most influential factors in whether you will be accepted, or not, is your credit rating. 

If you are someone who has a bad credit history, then it can be very frustrating. A lot of the time your credit score can be damaged by mistakes that happened a long time ago, and it can be frustrating to have this hanging over your head.

The good thing about credit reports is that they paint a clear picture of when financial mishaps occurred in your life, and all of these events will be time stamped. 

While these records will remain on your record for a long time, some lenders will overlook financial issues that occurred a long time ago. Of course, this will depend on what the financial issue was, as bankruptcies and CCJs will make getting any loan nearly impossible.

Generally speaking, most lenders will want a credit rating of 640 above to approve you for an SBA 7(a) loan, with any rating above 680 being viewed more favorably.

But it might be possible to get a loan with a lower score than this as long as you are open and honest with the lender, but nothing is guaranteed. 

Summary

In short, if you, or your business, has a bad credit history, then it can be very difficult to get an SBA loan. Generally, lenders will not offer SBA loans to individuals with a credit rating below 640, so it is important to research your credit score before you speak to a lender.